Fuseworks Media

January NZ Monthly Price pressures cooling

Overall prices fall in January, with sharp falls for airfares offsetting seasonal rises to food prices and accommodation.

– Our add up of the monthly CPI series suggests that inflationary pressures for a good chunk of the economy, are on a cooling trajectory. This suggests further OCR hikes are not needed.

– There is still some way to go until the RBNZ can declare mission accomplished. OCR cuts are unlikely to be delivered until later in 2024.

Implications The monthly CPI data cover only about 45% of the CPI regimen, and includes typically more volatile components, and is not intended to be used as a monthly CPI or a Monthly CPI indicator.

January saw the usual seasonal increase for food and accommodation prices, but this was offset by sharp falls for airfares. Looking through the seasonal variability it is apparent that the trend in underlying price rises is cooling. Our monthly add-up suggests the trend inflation pulse is cooling (see table above).

Inflation rates for the aggregate monthly measures have continued to sharply trend lower over the last 6 months and point to annual headline inflation rates continuing to fall.

We warn that the monthly CPI data are underweight for stickier services prices that have more of an impact on core inflation and more persistent inflation trends. However, today’s data would have increased the RBNZ’s comfort that headline inflation is on track to track to move below 3% by the 2nd half of 2024.

Nonetheless, the RBNZ will be wary over more elevated rates of services inflation and will keep monetary conditions tight. OCR cuts look are extremely unlikely until the second half of 2024.

January Monthly Prices M/M% 3M/3M% Y/Y%

Food Prices 0.9 -0.7 4.0

Rents 0.3 1.0 4.5

Alcohol & tobacco 3.1 1.7 7.2

Petrol -1.5 -5.7 9.9

Airfares -19.2 5.3 -25.9

Accomm dation 4.5 1.1 4.3

Total Monthly Prices (ASB estimates)

Total Monthly -0.3 0.1 2.6

Monthly ex food -1.0 0.5 1.8

Monthly ex airfares 1.1 -0.3 5.0

Monthly ex fuel -0.2 0.7 2.1

Source: Stats NZ, ASB.

QuickView | 14 February 2024

Food Prices (18.8% of CI weight) Food prices rose 0.9% in January (-0.2 on a seasonally adjusted basis, with annual food price inflation down to 4.0%, its lowest in more than two years.

In looking at the details:

– Fruit and vegetable prices were up just 0.3% (-2.8% mom), with the 1.2% annual fall the lowest since 2019.

– Grocery food prices rose 1.7% (5.2% yoy) driven by rises for milk and fresh eggs. This was higher than expected. It is our hope that consumer resistance to paying higher prices and promotions associated with supermarket rebranding should continue to cap grocery food prices in the coming months.

– Meat, poultry, and fish prices rose 1.0% (1.4% yoy) with prices for lamb increasing.

– Non-alcoholic beverage prices rose 1.0% but this followed a 2% December rise, with annual inflation easing to 4.4%.

– Price rises for restaurant meals and ready-to-eat food continued to increase (0.3% mom, 6.7% yoy) likely linked to rising wage costs.

We expect annual food price inflation to fall below 2% by mid-2024. This will be a relief to beleaguered consumers and will help drive overall inflation lower.

Other Monthly Prices (26.3% of CI weight) Dwelling rents are the largest component in the CPI (weight 10.3%) and in non-tradable CPI prices (17%).

Rents for the stock measure rose 0.3% mom, with the 3-monthly increase steady at 1.0%. Annual  dwelling rental inflation from the stock component ticked up to 4.%. Exceptionally strong net immigration is expected to sustain high inflation in this component over 2024.

Tobacco and alcohol prices (7.1%) rose 3.1% in January (+1.7% 3-monthly increase). A 6.4% gain in tobacco prices was driven by higher tobacco excise. Annual inflation from this component cooled to a still elevated 7.2%, with the indexation of excise to past CPI movements likely keeping inflation rates up.

Prices for airfares (2.7%). There was a larger than usual 19% seasonal fall (+5.3% 3-monthly) driven by a 22% fall in international airfares. We expect sizeable falls over 2024 as the COVID-19 premium unwinds.

QuickView | 14 February 2024

Accommodation (2.9%). There was a seasonal 4.5% rise, driven by a 10.9% rise in domestic accommodation cost, consistent with recovering inbound tourism. Annual inflation from this component is slowing (down to 4.3%) as the tourism sector begins to normalize post the immediate post-COVID rush.

Petrol prices (3.9%) fell 1.5% over the month (-5.6% 3-monthly). Movements in global oil prices will be pivotal. The eventual dropping of the Auckland regional fuel tax from July and no increases to fuel excise over the next 3 years should help cap future fuel costs.

This monthly data provides a partial picture as it includes only 45% of the CPI regimen and is underweight for services/non-tradable prices that provide a clearer steer on underlying inflation trends.

Our monthly add-up suggests the trend inflation pulse is cooling (see table on page 1). Inflation rates for the various aggregate monthly measures have sharply trended lower over the last 6 months.

This is encouraging to the RBNZ, but there is still some way to go before the RBNZ can declare victory on inflation. Ongoing monetary restraint will be needed to drive inflation down and deliver sub 3% inflation on an ongoing basis.









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Monthly NZ Inflation Pulse (annual rates are 3m averages)

3-monthly headline Annual ex-food Annual

Source: Statistics NZ, ASB

QuickView | 14 February 2024


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